Option Trade 
Twitter Inc (NYSE:TWTR) Calls
Monday, 8th August, 2016

** OPTION TRADE: Buy the TWTR DEC 16 2016 20.000 call at approximately $1.50. Place a pre-determined sell at $3.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.60.

by Ian Harvey

August 08, 2016

Twitter Inc (NYSE: TWTR), a global platform for public self-expression and conversation in real time, issued its Q216 quarterly earnings data on Tuesday, July 26th -- which was very poor – and the stock dropped dramatically. The “Cut-to-the-Chase” Members benefited greatly from this pullback as they had been recommended to trade an option put to account for this eventuality.

Now is the time to look at Twitter again as it may have bottomed and place an option call on this occurrence.

Twitter Inc stock has been the equivalent of dead money since June 3, 2015 – but for the smart option trader this volatility provides plenty of benefits.

Firstly, the downtrend line that pressured shares lower in April 2015 has been broken to the upside. However, the share price has yet to make a higher high.

The second feature is the possible pattern that is emerging. TWTR stock is setting up a possible double bottom formation. The double bottom would signal a trend reversal.

The firm’s market cap is $12.72 billion. The stock’s 50-day moving average price is $17.19 and its 200 day moving average price is $16.47. Twitter has a one year low of $13.73 and a one year high of $31.87.

Why Twitter?

Twitter Inc might be trading almost 20% lower year-to-date, but that statistic fails to capture what’s happening to Twitter stock. In reality, it has gained almost 30% since the start of May. Over the past week, almost as if by stealth, Twitter shares have seen an especially bullish display.

Twitter shares have certainly dropped significantly compared to last year. The social network continues to accumulate losses and is struggling to attract new users—a situation that has led to speculation about a possible takeover of the company, which was founded and is still led by Jack Dorsey. While analysts have cited corporate entities such as Google (a.k.a. Alphabet Inc [NASDAQ:GOOG]), Apple Inc. (NASDAQ:APPL), or even Facebook Inc (NASDAQ:FB) as the likeliest of buyers, there are certain individuals that should not be ignored. These are people who have the means to do so and who already own stakes in TWTR stock.

In 2016, Twitter started to offer a conversational ad format, whereby a tweet can include a branded hashtag. All advertisers will get access to this feature now, incentivizing more people to send marketing-loaded tweets. Ultimately, Twitter hopes this will get more advertisers on board, especially those that have complained that Twitter’s ad fees are too high.

Analyst Input

Twitter Inc.‘s stock had its “neutral” rating reiterated by analysts at SunTrust Banks Inc. in a research note issued to investors last Thursday. They presently have an $18.00 target price on the social networking company’s stock. SunTrust Banks Inc.’s price target indicates a potential upside of 2.21% from the stock’s current price.

Also, several other equities research analysts have recently commented on the company.

• Macquarie reissued a “hold” rating and issued a $20.00 price objective on shares of Twitter in a research note on Wednesday, April 6th.

• Deutsche Bank AG reissued a “buy” rating on shares of Twitter in a research note on Sunday, July 10th.

• Monness Crespi & Hardt lowered their price objective on shares of Twitter from $25.00 to $22.00 and set a “buy” rating on the stock in a research note on Wednesday, April 27th.

• Finally, Evercore ISI reissued a “hold” rating and issued a $18.00 price objective (down from $20.00) on shares of Twitter in a research note on Thursday, April 28th.

Six research analysts have rated the stock with a sell rating, thirty-one have assigned a hold rating, seven have given a buy rating and two have given a strong buy rating to the company. Twitter presently has an average rating of “Hold” and an average target price of $20.06.

Harvey’s Options Volatility Indicator


Twitter, apart from merger and acquisition rumors, which will certainly continue --continues to find ways to build its userbase and advertising revenue. There’s little else it can do. User numbers are the biggest asset that a social media company can exploit for revenue generation.

Twitter stock will likely sustain some of its gains over the next few weeks, given that the Olympics in Rio have begun. Additionally, Twitter has secured rights from major sports leagues like the North American Basketball Association (NBA), the National Football League (NFL), Major League Soccer, and Turner Broadcasting (Time Warner). In other words, Twitter plans to live-stream sports events on its platform. The sports ambitions and the predictably higher use of the social media platform during the Olympics should help Twitter should increase its user numbers—sustaining higher TWTR stock valuations.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the TWTR DEC 16 2016 20.000 call at approximately $1.50. Place a pre-determined sell at $3.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.60.

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